NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does Inequality Lead to a Financial Crisis?

Michael D. Bordo, Christopher M. Meissner

NBER Working Paper No. 17896
Issued in March 2012
NBER Program(s):   DAE   ME

The recent global crisis has sparked interest in the relationship between income inequality, credit booms, and financial crises. Rajan (2010) and Kumhof and Rancière (2011) propose that rising inequality led to a credit boom and eventually to a financial crisis in the US in the first decade of the 21st century as it did in the 1920s. Data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships. Credit booms heighten the probability of a banking crisis, but we find no evidence that a rise in top income shares leads to credit booms. Instead, low interest rates and economic expansions are the only two robust determinants of credit booms in our data set. Anecdotal evidence from US experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality, credit, crisis nexus. Rather, it points back to a familiar boom-bust pattern of declines in interest rates, strong growth, rising credit, asset price booms and crises.

download in pdf format
   (238 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17896

Published: Bordo, Michael D. & Meissner, Christopher M., 2012. "Does inequality lead to a financial crisis?," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2147-2161. citation courtesy of

Users who downloaded this paper also downloaded* these:
Taylor w14631 The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong
Reinhart and Rogoff w14656 The Aftermath of Financial Crises
Schularick and Taylor w15512 Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008
Calomiris w15403 Banking Crises and the Rules of the Game
Aguiar and Bils w16807 Has Consumption Inequality Mirrored Income Inequality?
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us